ANZ Alliance with Qantas is Preferable

23rd Jun 2003

Statement made by Ralph Norris, Managing Director & CEO AirÊNewÊZealand Limited:.Air New Zealand and Qantas have submitted further information to the New Zealand Commerce Commission. The submission clearly shows that the proposed Strategic Alliance is the only way to secure substantial and long term benefits for New Zealand, including tourism and job creation, with little negative effect.

The evidence clearly shows that New Zealand and Australia are not isolated from the changes which have dramatically affected the global aviation industry and we must learn to adapt and accept change to continue to grow and prosper as both a nation and an airline. The Alliance is a bold initiative by Air New Zealand and Qantas, but it does need the support of the Commerce Commission if the substantial and long term benefits are to be realised.

The highly respected economic advisor to Air New Zealand and Qantas, Henry Ergas of NECG has confirmed his assessment of the benefit to New Zealand and this has been reviewed by other world-leading economists including Professor Robert Willig. All agree with the economic evidence submitted in support of the Application and will say so directly to the Commerce Commission.

These economic opinions fundamentally disagree with the economic modelling carried out by, and on behalf of, the Commerce Commission upon which it based a significant part of its draft determination.
If New Zealand wants to avoid the economic consequences of another near failure of Air New Zealand, future State intervention in shaping New Zealand`s airline industry is likely to be inevitable if competition regulators in New Zealand and Australia decline the application by Air New Zealand and Qantas.

Air New Zealand views such State intervention as inappropriate and unnecessary in the local deregulated airline market, but notes its competitors internationally include heavily subsidised and highly protected airlines, some of which already operate to New Zealand.

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The Minister of Finance has also stated on numerous occasions that the State is not prepared to be a fairy godmother and provide unlimited future funding of the airline.

That is why the Alliance should be allowed to proceed as it provides a pragmatic, commercial framework within which Air New Zealand can operate successfully as an independent New Zealand-owned and controlled airline in the rapidly changing global aviation environment.

Domestic New Zealand routes are not extensive enough to sustain AirÊNewÊZealand, Qantas and a budget carrier such as Virgin Blue going head to head. One airline will ultimately have to give ground. The most vulnerable in such a situation is AirÊNewÊZealand.

Our response to the New Zealand Commerce Commission`s draft determination is consistent with the case we have presented from the outset.

Some critics have described our position as a doomsday scenario. It is a realistic assessment of the trends that are sweeping through the airline industry internationally.

New Zealand and the trans Tasman routes can not escape what is happening in the rest of the world.

A budget airline will be operating on routes to New Zealand. Last week Virgin Blue announced its intention to do that, and while it clothed that announcement in terms ofÊit being conditional on the outcome of the Alliance decision, we know that to be posturing in a transparent attempt to gain cheap control of the entire budget carrier segment through a forced sale of Freedom Air.

The present head to head competition between Air New Zealand and Qantas will not be sustainable. Add in a budget airline, and the end consequences range between:

* Withdrawal or failure of one airline; * Air New Zealand being made vulnerable to a full takeover; * Further ongoing State support, which is most unlikely to occur. FOR FULL COMMENT SEE www.airnz.co.nz